By: CHRIS GRAEME
THE PROPERTY and financial sectors have to wake up to the economic reality of a prolonged recession, lasting up to three years, in which nothing will ever be the same again.
This was the depressing but realistic message from a whole host of financial and property beagles at a Capital Markets Conference organised by Cushman & Wakefield in Lisbon last week.
Delegates heard that, in the past, CEOs and politicians alike had blithely said “I’m sorry” for corruption, fat cat salaries, mismanagement and irresponsible risk-taking, but not any more, since, as the old 70s Diana Ross song goes, Sorry doesn’t always make it right.
Both Luís Antunes and Eric van Leuven of Cushman & Wakefield (Lisbon) painted a stark picture for Portugal for the next two years, suggesting an economy on “the verge of stagnation” and hard times for companies and the ordinary man in the street.
Eric van Leuven said: “The year 2008 will be a year to remember in property market terms and for all the wrong reasons. The coming months will not be easy and many losses will have to be recognised, there’s no use denying it.”
Dr. Carlos Leiria Pinto, director general of EUROHYPO (Portugal), a specialist bank for commercial real estate financing with branches across Europe, outlined the causes for the present financial nervous breakdown, originating, at least in part, in the property market in the United States and the high risk mortgage loans or sub-prime vehicles, the results of which had now spilled over to the rest of Europe and the world.
And who was to blame? The Wall Street traders and stock market speculators, the supervisory regulators, the fat cat CEOs of private investment banks, the world’s governments’ faith in neo-liberalism or a combination of all these factors.
“The Portuguese banks are not generally directly affected by the so-called sub-prime market and derivative markets, although there were investments in poor quality assets and, on the other hand, the Portuguese banks were very reliant on getting finance from the international capital markets,” explained Dr. Carlos Leiria Pinto in an interview with The Resident.
Because the international capital and financial markets had little liquidity, the Portuguese banks were also suffering as the banks had to pay a higher price to get credit to sustain their own lending on the international money markets.
Consolidation
On the question of banks consolidating in the market to resist the crisis, Carlos Leiria Pinto said: “A greater concentration in the Portuguese banking sector would not be very favourable to the market since we don’t have that many banks. I do think there may be some amalgamation in the long term, but not for now while things are so unclear,” said the banker.
There would be a slowdown in large-scale retail developments such as shopping centres since the market was “super-saturated” with developments and retail parks which had to do, in the past, with either a growth in population or an increase in purchasing power, both of which were showing clear signs of tailing off.
With this crisis and the need for state intervention, the public debt of European countries including Portugal is going to rise, and countries that aren’t used to this, like France, Germany and the United Kingdom, are going to end up with debts on the same ratio level as Portugal.
